The Social Cost of Stochastic and Irreversible Climate Change

Yongyang Cai, Kenneth Judd and Thomas Lontzek (lontzek@econ.rwth-aachen.de)

No 18704, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There is great uncertainty about the impact of anthropogenic carbon on future economic wellbeing. We use DSICE, a DSGE extension of the DICE2007 model of William Nordhaus, which incorporates beliefs about the uncertain economic impact of possible climate tipping events and uses empirically plausible parameterizations of Epstein-Zin preferences to represent attitudes towards risk. We find that the uncertainty associated with anthropogenic climate change imply carbon taxes much higher than implied by deterministic models. This analysis indicates that the absence of uncertainty in DICE2007 and similar models may result in substantial understatement of the potential benefits of policies to reduce GHG emissions.

JEL-codes: C63 D81 Q54 (search for similar items in EconPapers)
Date: 2013-01
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
Note: EEE
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Citations: View citations in EconPapers (72)

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